4 Steps to Achieving Financial Stability

Anyone who has lived paycheck to paycheck knows that it’s no fun. You struggle to scrape by every month, you’re constantly stressed about money and even a minor emergency could put you in difficult spot. Fortunately, you can achieve financial stability if you follow the right strategy. Here are the four steps you can take to do it.

Make Saving a Habit

The most important habit you can get into is saving at least 10 percent of what you make from each paycheck. You should use this money to build an emergency fund and a retirement savings. If you don’t make enough money to save anything, then you have two options—you can find a way to cut your expenses, or you can increase your income by negotiating a raise, getting a new job or adding a side hustle.

Many people however, just say they can’t save anything as a excuse. They may believe it but they are lying to themselves. If I asked you if you could save a penny a day could you do that? Unless you are homeless you will probably say yes. So it’s not that you can’t save anything the question is how much can you save?

The brutal truth is that everyone puts their money toward their personal priorities and so if you aren’t saving it is because it isn’t really a priority for you. The key to saving is just getting started (and not raiding the piggy bank the first time the urge for a pizza hits). So if you “can’t afford to save” start small, even if it is only a penny a day. Get a jar and put it next to your bed and put a penny in it every day (or a quarter or dollar) or whatever you consider “a small amount”. See The Jars Method for more information.

The key however is consistency. You have to get into the habit of saving every day. When the jar gets full take it to the bank (or Credit Union) and open a savings account. Once you are in the habit of putting money in your jar, increase the amount you put in it, little-by-little. And over time you can increase it more and more until you work up to the 10% goal. The key is not the amount you start with but simply the fact that you are creating a habit of saving. Don’t wait until it is easy to save 10% (or it never will be) start small and work your way up.

Once you get past the “penny ante” stage you can have your savings automated. You can either have your employer or your bank take a certain amount out of every paycheck and put it into a seperate savings account. A penny a day is roughly 30 cents a month. What about 10¢ a day can you afford that? That’s $3.00 a month have it taken out of your paycheck automatically.

Do you go to Starbucks? How about putting your Starbucks money in a savings account instead and fixing your own coffee? Did you know that if you stop at Starbucks every day on the way to work you are wasting $1,200 a year? 5 days a week at $5 each is $25 per week times 50 weeks a year is $1,250. You need supplies so say $1,200 per year savings.

You can buy a single cup coffee maker for about $20 which takes less time to brew than it takes to park your car and get in line at Starbucks (so time isn’t an excuse). If you want a fancy flavor you can get flavored beans, I like Hazelnut ground coffee which will cost another $5. and you can even get Starbucks Coffee Hazelnut Syrup with Pump Dispenser for another $5. Total cost to get started $30 saving you at least $1,200 the first year (and more thereafter)! Put that $1,200 to better use and start a savings account. There are hundreds of other “small things” you can do that will really add up.

Manage Your Credit

Your credit score is an important part of your financial profile. You need a good score to quality for the best credit cards and the lowest interest rates on loans. Your credit can even affect your car insurance rates and whether you get hired for certain jobs. To build a good credit score and keep it that way, make sure that you pay your bills on time every pay period and avoid having a credit utilization of over 30 percent. The less of your total credit you’re using, the better. See: Going from Zero to 720 Credit Score in One Year

Protect Yourself with Insurance

Insurance may seem like another bill to pay every month, but you’ll be happy to have it when you need it. Health and auto insurance is mandatory for everyone, but you should also make sure that you have adequate home insurance, whether you’re a renter or a homeowner. Without insurance your savings could be eaten up by a single mishap.

Although you could shop online for the cheapest rate, a good insurance agent should be a member of your “Financial Advisory Team”. When looking for insurance you can choose either an independent agent like Crowel Agency, Inc. which is able to shop around among a variety of companies and determine what types of insurance you need and which company will give you the best deal for your personal situation. The other option is to go with a national company that has its own agents who can only offer insurance from a single company, which could be a mistake since the choices will be limited to what that one company offers. By choosing an independent agent you get a free advisor to help you make decisions about your insurance needs.

Make Long-Term Decisions

Another key to achieving financial stability is learning to play the long game. It’s always tempting to make a decision that brings short-term pleasure, such as buying that new jacket even though you’ll need to carry a balance on your credit card. The most financially stable people focus on making decisions that benefit them in the long term, such as saving money and avoiding overspending. According to Business Insider, “The key difference between people with consumer debt and those without, everything else being equal, is that the person with no consumer debt has mastered delayed gratification while the person with consumer debt has not.”

Financial stability isn’t something that happens overnight. It’s a gradual process, and to achieve it, you’ll need to work hard to establish the right financial habits for yourself.

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At Your Family Finances we are not registered investment advisors and do not provide any individualized advice. Past performance is not necessarily indicative of future performance and future accuracy and profitable results cannot be guaranteed.